Swan reveals $7.5b budget hole

Federal Treasurer Wayne Swan has revealed the budget has taken a $7.5 billion hit since the end of October.

Mr Swan blamed the effects of the high Australian dollar for the revenue writedown.

Speaking to the ABC's Insiders program, he said Australia was in a unique situation where the terms of trade have come down, but the dollar has not moved.

Mr Swan said this has had a dramatic impact on company profitability and prices in the economy.

"That's caused a hit if you like, a sledgehammer to revenues in the budget since the mid-year update of something like $7.5 billion," he said.

"Of course the impact won't just be in this financial year, it will also be across the forward estimates."

Mr Swan said the Government was focused on protecting jobs amid the "challenging" conditions.

"In a responsible way we should chart our way back to surplus, but it would be deeply irresponsible to cut more to make up for these revenue losses," he said.

"All that would do would cause higher unemployment and lower growth and more debt.

"We're bringing this budget down in very, very challenging circumstances because we've had this hit to revenue.

"My purpose in this budget is to make sure that we do everything that we possibly can to protect jobs, to make the smart investments for the future. That will be our goal.

"The alternative to that will be savage cuts across the budget to return to surplus earlier, and that would be a tragic mistake for Australia and of course , that is the approach which is put forward by Mr Abbott and the Liberal Party."

"There are lots of promises that the current Government will make going into the election that the Coalition simply won't match," he said.

Carbon price 'folly'

Mr Swan also dismissed suggestions that a plunge in Europe's carbon price has put future tax cuts and pension rises at risk.

Australia's carbon pricing scheme will be linked to the European system from 2015, when the fixed carbon tax will cede to an emissions trading scheme.

Last week, carbon permits dropped to as little as 2.63 euros ($3.34) a tonne.

It came after the European Parliament rejected an emergency plan that would have forced companies to pay more for polluting.

Treasury modelling had previously estimated the carbon price for 2015-16 would rise from a fixed rate of $23 a tonne to $29.

The Opposition has said the slump in the carbon price in Europe would have a costly impact on Australia's carbon market.

But Mr Swan said it was unwise to make judgments based on a particular period.

"I think it's folly, for example, to take a spot price for carbon on one day after one event and then transfer that into conclusions over a four-year period," he told Insiders.

"The fact is that the price in Europe has been far higher in the past and of course, economic conditions improve in the way in which they handle their scheme changes, then in the future we could well see higher prices.

"I just think it's folly to draw the sort of conclusions that I've seen in the press based on one event, or one year for that matter.

"The European parliament, the vote that was taken that was effectively trying to pop up the price, it was very close."